• February 25, 2015
• By Rick Arthur
• In Cash Flow, cash flow management
• No Comment
• 4

If it always seems as though there is never enough cash in your growing business, you’re not alone. In my 35+ years’ experience as a business owner and CFO, I’ve implemented some proven methods that have helped companies obtain positive results in cash flow and profit.

Over the course of the next 5 issues of Financial Intelligence Friday, I’ll share with you my top 5 methods which include:

1. Unlocking the Secret of Your Cash Flow
2. Working Capital – How Much Do You Need?
3. Profit Does Not Equal Cash
4. The Secret: Your Financial Score Card is Not Secret
5. My Favorite “F” Word

Of course, if you’d like to learn more about all 5 sooner rather than later, give me a call or send me an email and we can set up a time to meet.

Meanwhile, did you know that 60% of most companies fail in the first 5 years even though they are generating profitable revenues?  It’s true, and the reason is because they don’t have sufficient cash flow. Lack of Financial Intelligence is the #1 contributor to this problem.  It’s critical to understand your financial scorecard. The good news is that Financial Intelligence is merely a set of fundamental skills that can be learned.

Let’s start with method #1 to help your company obtain positive results in cash flow and profit.

#1 Unlocking the Secret of Your Cash Flow

Do you know how long it takes your business to spend cash on your resources to produce sales, and then convert it back to cash?  This fundamental information is easily calculated from your financial statements, and gives you have the starting point to improve your cash flow…your Cash Operating Cycle (also called Cash Conversion Cycle).  With this Financial Intelligence you can benchmark your current time (expressed in days), then monitor the changes as you begin to implement strategies to improve.  The three major components for calculating your Cash Operating Cycle are inventory, A/R and A/P.  As an example, if you improve your Cash Operating Cycle by 10 days and your average daily sales are $10,000 your cash flow increased by $100,000 (10 days x $10,000 sales per day).  In other words, you now have $100,000 more cash to operate your business…and you didn’t have to borrow it.  The faster the Cash Operating Cycle the less working capital is required to run your business.

If you’d like to receive a simple Excel spreadsheet to calculate your Cash Operating Cycle, just send me an email.  Next time, I’ll address method #2, which is all about how much working capital you need.